Press Comment : JLR shifts up a gear without UK Government’s support

After being clobbered by the double whammy of recession and credit crunch, it’s wonderful to see JLR back in the black (in operating terms at least) with some excellent results. Indeed, so much so that it will be fun to watch some of the teenage scribblers in the London business press digest this after roundly slagging off the firm earlier this year (they should get out more and understand manufacturing better).

The Tata-owned but Midlands-based firm has made an operating profit after aggressive cost cutting and a rise in sales. The latter has been boosted by improvements in markets like China and the UK and also through sheer hard work by the firm. Its 2010 range of revamped Range Rover, Range Rover Sport and Discovery 4 is doing well. Meanwhile, the stunning Jaguar XF takes on all-comers and the real benefits of the XJ are yet to come.

JLR sales rose by nearly a quarter to 23% to 44,300 vehicles, up from 35,000 in the previous quarter. The UK market was the surprising star of the show, with sales up by a third to 14,400 vehicles (with confidence more generally boosted by scrappage of course), while Chinese sales grew by 2.1% to 3,400. North American sales fell by 7.3% to 9,600 as consumers continue to switch to smaller, more fuel efficient cars. The latter shows how important JLR’s £800 million investment in green technologies really is and how key the LRX (a lightweight hybrid ‘baby’ Range Rover) will be.

JLR’s Indian parent, Tata Motors, stated yesterday that JLR made an operating profit of £41 million in the three months to 30 September, as compared with a loss of £34 million in the same quarter last year ago. JLR’s overall net loss narrowed to £60 million from £240 million in the comparable period last year. This is quite a turnaround.

JLR sales rose by nearly a quarter to 23% to 44,300 vehicles, up from 35,000 in the previous quarter. The UK market was the surprising star of the show, with sales up by a third to 14,400 vehicles (with confidence more generally boosted by scrappage of course), while Chinese sales grew by 2.1% to 3,400. North American sales fell by 7.3% to 9,600 as consumers continue to switch to smaller, more fuel efficient cars. The latter shows how important JLR’s £800 million investment in green technologies really is and how key the LRX (a lightweight hybrid ‘baby’ Range Rover) will be.” Professor David Bailey, Coventry University Business School

Ravi Kant, Vice-Chairman of Tata Motors, said that “lot of restructuring is happening. The impact of these restructuring measures is still to kick in… we have created national sales organisations in all the countries where we sell Jaguar Land Rover. And all the new models are high margin products”. Tata’s Chief Financial Officer added that “most of the cars sold during the quarter were higher margin cars, which is why the fixed marketing costs got reduced… many of the cost reduction measures underway in JLR should benefit us in coming quarters.”

Tata brought in KPMG and Roland Berger Strategy Consultants to cut costs at JLR. The firm has laid off over 2000 workers since the start of the recession, has cut pay for new staff by up to 20% and – with the help of its workforce – has agreed a temporary wage freeze. It has also announced plans to close one of its West Midlands factories by the middle of the next decade (rumoured to be Castle Bromwich), outsource production overseas and close its final salary pension scheme to new members.

The firm has recently secured over half a billion in funding from overseas – with some £175 million coming in loans from the State Bank of India and another £170 million from GE Capital. Under the latter, JLR will be able to draw down cash as soon as its cars roll off production lines, in turn boosting the firm’s working capital by shortening the 30- to 40-day gap it has to wait between producing cars and delivering them to dealerships.

Interestingly, the State Bank of India is – as the name suggests – state-owned, while GE Capital received US Government backing for its debt when the credit markets imploded last year so, in effect, we see two foreign state-owned or backed banks supporting JLR. It’s a shame the (mainly state-owned) UK banking system hasn’t been able to do so on similar terms.

By the way, in the future, I’d like to see more investment in UK industry by British state-owned banks and rather less effort spent investing in dodgy Dubai property or backing hostile takeovers of British success stories like Cadbury. Our banking system needs to be run in the interests of businesses and households, as John Clancy and I have repeatedly pointed out in our blogs.

JLR has also said that it is in the process of finalising private sector guarantee arrangements to access a £340 million loan approved by the European Investment Bank. This was something the firm was trying to negotiate with the UK Government but found the terms on offer so onerous that it walked away.

Despite all that, hats off to JLR for a strong set of results. The firm has got on with the job in hand of developing wonderful products and cutting costs to compete internationally – without much in the way of government support. There’s more to come as the firm has an excellent product pipeline. It will need one if it is to maintain employment in the Midlands – as JLR management genuinely hopes – when it goes from two plants to one in a few years’ time.” Professor David Bailey, Coventry University Business School

One loan under the Automotive Assistance Programme that we thought was going ahead was the £10 million loan to Tata to develop its European Technical Centre here in the Midlands at the University of Warwick (the centre was set up in 2005). Lord Mandelson announced the loan last month, saying that Britain was backing Tata’s research into electric cars. However, the Indian financial newspaper The Economic Times today reports that Tata has again said “thanks but no thanks” and that it doesn’t want the money as it can get better terms from commercial lenders.

The money was going to be used to develop an electric version of one of its existing models. Let’s hope that the development work and, ultimately production of electric cars, will go ahead in the UK despite the lack of accessible funding support from the UK Government. This is an area where the UK really can compete if we invest in new technologies.

That also leaves me scratching my head as to how much money has actually been spent under the £2.3 billion Automotive Assistance Programme. I get the impression that it’s peanuts so far, despite the huge downturn in the industry we’ve seen and the 30,000+ job losses that have been experienced in the sector.

Despite all that, hats off to JLR for a strong set of results. The firm has got on with the job in hand of developing wonderful products and cutting costs to compete internationally – without much in the way of government support. There’s more to come as the firm has an excellent product pipeline. It will need one if it is to maintain employment in the Midlands – as JLR management genuinely hopes – when it goes from two plants to one in a few years’ time.

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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